SEGMENTATION COSTING US INVESTORS BILLIONS

The CMCRC has found that segmentation to the extent that it has experienced in the U.S. has led to a deterioration of market quality.

The U.S. market features approximately 300 different venues, including thirteen registered exchanges, forty or so active alternative trading systems (ATSs) and numerous broker-dealer platforms.
The study, by Dr. Frank Hatheway, Dr. Hui Zheng and Dr. Amy Kwan, looks at U.S. trading venues with restricted access and without displayed orders – generically ‘dark pools’ – which increasingly segment order flow in the U.S. The study seeks to quantify the effect of dark pools on price discovery, and their impact on U.S. market quality. The authors show that the effects of order segmentation by dark venues are damaging overall price discovery and market quality.